Homeowners who want lower monthly mortgage payments turn to refinancing to make it happen. Real estate lenders say the best time to strike is when interest rates start to drop. While reducing payments is likely the prime motivation for refinancing, you should keep a few other factors in mind about this loan restructure, which are detailed below.

What to Check Before Refinancing

1. Outstanding Debt

The amount of outstanding debt will likely be a factor during the refinancing process. Just as with your initial home loan application, lenders still want to see a reasonable debt-to-income ratio. Ideally, the ratio should be less than 35%. Refinanced monthly mortgage payments should be around 28% of a person’s gross monthly income. These percentages help homeowners manage their bills without being cash-strapped. Before submitting your refinanced mortgage application, pay down car loans, credit card balances, and other financial obligations.

2. Credit Score

Since the borrower’s first mortgage closing, situations such as a foreclosure or bankruptcy may have caused a credit score drop. When it’s time to refinance, lenders generally require a high credit score to approve low interest rates. Check your credit score from the nation’s credit reporting bureaus, Equifax®, Experian®, and TransUnion®. If your score has decreased, take the time to improve it by making on-time payments and not overextending credit use.

3. Home Equity Accumulation

One of the main qualifiers for mortgage refinancing is having a surplus of home equity. Those who have accumulated at least 20% may have a better chance of being approved. If you’re not sure about your home’s equity amount, a professional mortgage broker can provide an assessment. While some private lenders request a certain percentage amount, some government loan programs, including the Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA) offer alternative requirements.  

Since 1998, Aloha Mortgage in Honolulu, HI, has helped Oahu residents shop for the best loans and interest rates. What makes the locally owned mortgage broker unique is their 100% commitment to affordable and accessible home ownership. Whether you want to refinance or buy your first home, the experienced and friendly team of agents will walk you through the entire process. It’s why the agency’s motto is, “Put the aloha in mortgage.” To learn more about refinancing options, call (808) 255-9366 today. Visit the website for information on the firm’s full suite of services, including reverse mortgages.